2005 (2) TMI 48 - HC - Income Tax

Whether Tribunal was right in law in holding that the rectification order dated March 31, 1986 under section 154 by the Income-tax Officer in respect of the assessment order dated March 25, 1982 was barred by time on the ground that unamended provisions of section 154(7) were applicable? - AO passed an order u/s 154 for the purposes of reworking the depreciation allowance - Impugned order of the Tribunal holding that the rectification order was barred by limitation is not correct. There is no indication in the context of the amendment Act, nor is there any express provision which would prohibit the assessing authority from passing an order of rectification within the extended period of limitation. There is no dispute that the period of limitation under the unamended provision had not expired when the amendment was made in the statute - The question referred to the court is, therefore, answered in the negative, i.e., in favour of the Revenue

Issues:
1. Interpretation of section 154(7) of the Income-tax Act, 1961 regarding the period of limitation for passing an order of rectification.
2. Application of the amended provision of section 154(7) to rectification orders made before the amendment.
3. Whether the amendment of section 154(7) can be invoked in circumstances where the rectification order was made after the amendment came into effect.

Analysis:
1. The case involved a question of law referred by the Income-tax Appellate Tribunal regarding the rectification order passed under section 154 of the Income-tax Act, 1961. The main issue was whether the rectification order dated March 31, 1986, was barred by time under the unamended provisions of section 154(7) or the amended provisions which came into effect from October 1, 1984.

2. The relevant provisions before and after the amendment of section 154(7) were compared. Before the amendment, the limitation period for rectification was four years from the date of the order sought to be amended. However, post-amendment, the period was extended to four years from the end of the financial year in which the order was passed.

3. The court analyzed the impact of the amendment on the rectification order dated March 31, 1986. The original limitation under the unamended provision would have expired on March 24, 1986. But due to the amendment, the period was extended up to March 31, 1986. The crucial question was whether the amendment could be applied retroactively to rectification orders made after the amendment came into effect.

4. The court relied on previous judgments to establish that changes in procedural matters, including limitation periods, apply to pending proceedings unless a vested right has accrued under the old law. The court emphasized that limitation is a matter of procedure and the new period of limitation would apply to pending proceedings unless expressly prohibited.

5. Ultimately, the court held that the rectification order was not barred by limitation as the amendment Act extended the period of limitation, and there was no prohibition on passing rectification orders within the extended period. The decision was in favor of the Revenue and against the assessee, based on the settled position of law and the application of the amended provision.

6. The court also clarified that while a previous decision was approved by the apex court, it was on a different issue, not directly related to the matter at hand. The reference was disposed of with no order as to costs, concluding the judgment.

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